Incident: On August 17, the company released its semi-annual performance report. In the first half of this year, the company achieved operating income of 918 million yuan, an increase of 7.3% over the previous year, net profit of 69.512,100 million yuan, an increase of 77.6% over the previous year, and realized net profit of 508.657 million yuan, an increase of 112.72% over the previous year. Basic earnings per share were $0.1,565, up 62.68% year over year. In the first half of the year, the revenue of alternative products increased by 45.03% year-on-year, and the performance is expected to be even better in the second half of the year. In the first half of the year, the company's functional feed additive product revenue was 65.927 million yuan, an increase of 38.25% over the same period last year, and gross margin was 62.48%, an increase of 10.42% over the same period last year. Among them, the revenue of alternative antibody feed additive products was 63.95553 million yuan, an increase of 45.03% over the previous year. Since the “Ministry of Agriculture and Rural Affairs of the People's Republic of China Notice No. 194” of the drug feed additive withdrawal plan was only officially implemented on July 1 this year, it is expected that sales of antibody products in the second half of the year will increase even more than in the first half of the year. Our in-depth report estimates that the domestic drug replacement market has a potential space of 10 billion dollars. The company's alternative drug product is one of the two types of Chinese veterinary drug additives allowed to be added. It has first-mover advantages and channel advantages, and is expected to rapidly increase its market share. The COVID-19 pandemic boosted demand for glucocorticoid-related products. In the first half of the year, steroidal hormone API revenue increased 32.54% year over year. The COVID-19 pandemic has increased demand for the company's glucocorticoid-related products. At the same time, the company has responded positively to the negative impact of the epidemic and promoted various methods such as webcasts and video promotions to promote communication with customers and suppliers. The company's steroidal hormone API business sales increased in the first half of the year. Achieved operating income of 587 million yuan, an increase of 32.54% over the same period of the previous year, and gross margin was 24.5%, a decrease of 7.35% over the same period of the previous year. The decrease in gross margin was mainly due to price declines due to intense competition in the intermediates industry and rising costs related to the impact of the epidemic. The second half of the year is the peak sales season for feed enzyme preparations, and there is plenty of room for domestic replacement of non-feed enzymes in the future. Affected by the seasonality of the downstream aquaculture industry, the first quarter of every year for feed enzyme preparations is the industry's low season, and the third and fourth quarters are the industry's peak season. The company's feed enzyme preparations account for about 70% of the revenue of biological enzyme preparations. In the first half of the year, the company's bioenzyme preparations achieved revenue of 235 million yuan, a year-on-year decrease of 8.07%, and gross margin of 54.36%, an increase of 9.63% over the same period last year. The main reason for the increase in gross margin was the good year-on-year sales of feed enzyme preparations with higher gross margins. The company has become the most important supplier in the feed enzyme preparation market in China, with steady growth, and has expanded into categories such as energy enzymes, food enzymes, papermaking enzymes, textile enzymes, and environmental enzymes. In the long run, there is plenty of room for domestic replacement of non-feed enzyme preparations in the future. With the smooth release of the company's new production capacity, the contribution of non-feed enzyme preparations to performance will increase significantly. Financial expenses have been drastically reduced, and net interest rates have been raised. The long-term loan balance in the company's semi-annual report was 58.5 million yuan, down 63.21% from the beginning of the year, mainly due to the early repayment of loans by the parent company during the reporting period. Financial expenses for the semi-annual report were 24.54 million yuan, a year-on-year decrease of 38.31%, mainly due to lower loan interest rates, reduced interest expenses, and increased exchange earnings during the reporting period. The company continues to optimize capital allocation and improve the efficiency of capital use. Reducing capital expenditure in the future will effectively reduce financial expenses and increase net profit margins. The net interest rate for the interim report increased to 8.77%, up 3.02% from the same period last year. Investment suggestion: The company is a domestic leader in biological enzyme preparations. It has the entire industry chain from phytosterols to finished APIs. In the future, it will increase its international layout and forward-looking layout of alternative products. With its first-mover advantage and its own channel advantages, the company is expected to quickly seize this blue ocean market. The company's 2020-2022 EPS is expected to be 0.42, 0.59, and 0.76 yuan, and the corresponding PE is 34.3 times, 24.7 times, and 19.1 times, respectively, giving it a “recommended” rating. Risk warning: downstream aquaculture industry epidemics, natural disasters, cyclical fluctuations in sales, bad debts on accounts receivable, project investment falling short of expectations, market development falling short of expectations